Peru Elects its President, But Uncertainty Still Reigns

The Peruvian presidential elections have been highly contested from the start, and the inability of the more moderate candidates to consolidate the vote resulted in a run-off between the two more polarizing candidates. The second round of elections took place on June 5 between Ollanta Humala — a once radically leftist candidate all too quickly turned moderate by his Lulista political advisors — and Keiko Fujimori — the more moderate but still controversial daughter of the former President Alberto Fujimori, who is now serving out a prison sentence for human rights violations.

In a somewhat surprising turn of events, the second round of the Peruvian elections concluded with 51.7% of the vote in favor of Humala, while only 48.6% went toward Fujimori. Given Peru’s high stakes as the region’s leader of year-on-year GDP growth for nearly a decade, the Humala victory leaves many skeptics and everyone hoping for the best. Bluntly put, if Humala reverts to his Chavista ways, Peru may not only find its economy isolated from the rest of the world, but the most recent election may be the last for some time.

Polls in the days before the election placed Fujimori in a comfortable lead. This may have led to some degree of complacency, which proved ill-timed given Fujimori's significant loss of votes in the north of Peru and in Lima, two of her key contingencies. Elite sway may also have played a part, in addition to a "hidden vote" in favor of Humala that went unaccounted for in previous polling.

On news of Humala’s election, the Peruvian Stock Exchange (Bolsa de Valores de Lima) dropped a record-breaking 12.5% due to international skepticism of the winner’s intentions, causing regulators to preemptively close the exchange for the day in order to mitigate further losses.

Popular reaction was split as the Peruvian public grappled not only with Humala’s suspiciously quick transformation, but also with the legacy of Fujimori’s father. As such, in her concession speech, Fujimori urged unity in a country so divided by the electoral process. Humala followed, offering a message vaguely reinforcing both his nationalist principles and his commitment to the redistribution of wealth, stating that "Peru as a country cannot advance unless the Peruvian family advances."

What now? We wait.

First, we await decisions regarding Humala's cabinet. In a move to quell market instability, he is widely expected to name more moderate candidates to the positions of prime minister and finance minister, both appointments being equally important in changing the Peruvian and international perception of his government. In a calculated move to win the moderate vote, Humala recently replaced his 180-page plan calling for constitutional amendment and anti-competitive measures with a much more agreeable plan, no more than 10 pages in length. Humala has hit the political reset button, so it will take longer than usual to hear of his ministerial appointments — and the longer the delay, the greater the concern that his first picks are declining.

Further, we await his fiscal policy. Any sort of extraordinary spending, especially in the immediate term, will scare away foreign direct investment for some time, as it will once again position Humala as a radical, reversing the efforts of his advisers.

More long term, we await the end of the political grace period, largely determined by the prices of commodities, Peru's most profitable export. Higher mineral prices would provide Humala with the resources necessary to govern without much pressure to make the decisions that might his force him to reveal his true colors. That is, if commodities maintain their high prices, we can expect more of the hoped-for Lulista policies. If these prices drop, however, we should not be surprised if he reverts back to his more Chavista ideologies, dropping the new political plan, and maybe even the new suit and tie.

All uncertainty aside, one point is concrete: for all the last decade's GDP growth and foreign direct investment, Peru remains a country deeply divided. Perhaps only a Lulista could bring about the sort inclusive growth and upward social mobility necessary to begin to bridge this socioeconomic gap. If only for lack of recourse, let's hope he keeps wearing that suit.

Santiago is a recent graduate of Harvard University, where he studied Economics, Portuguese, and French. He currently works in the investment industry in New York City with a focus on Latin America. He was raised in Washington, D.C., and his hometown is Lima, Peru.